Help UK Banks Come Up With ‘Worst Case Scenario’ Drills

Remember the financial crisis? U.K. bank regulators do and what’s most memorable to them is just how badly their firms fucked that shit up. RBS, seriously? SERIOUSLY? And the rest of you weren’t much better. It’s something that keeps the FSA up at night and to be honest, confidence in your abilities to respond to another serious “situation” has not been restored. In fact, if we’re being completely open, RBS, Bank of Ireland, Allied Irish Banks, all you guys right now are like a stoner who nearly burnt down the house because you absentmindedly left the stove on when you tried to make pot brownies and then wandered out of the room to look out cloud formations. If that wasn’t bad enough, you didn’t smell the smoke or see the flames and it was your neighbor who had to call the fire department and carry you outside. There’s no way anyone’s comfortable leaving you home alone again for the foreseeable future and you have them so freaked out they’ve been forced to treat you like imbeciles and make you go through a bunch of mock scenarios to see if you’d know how to react.

U.K. bank regulators are launching a new type of “stress test” that forces banks to consider unlikely but potentially disastrous scenarios…The latest exercise, which the U.K.’s Financial Services Authority instructed banks to start conducting in mid-December, is dubbed a “reverse stress test.” It requires banks to identify potentially fatal events and then to work backward to find ways to revamp their businesses so they would be better prepared to withstand such shocks.

So far those scenarios include what to do in the event of: a Latin American coup that knocks out a bank’s local operations; a disrupted food supply sparks social chaos; a major trade war erupts between the US and China; volcanic ash cloud grounds UK air traffic for months; and a flu pandemic wipes out a bank’s workforce.

Not surprisingly, British banks have not appreciated being forced to do this shit, as they think it’s “overkill” and a “massive waste of time” and as though there’s a perception they’re stupid. One CEO described it as “risk planning gone mad.” But guess what? The government doesn’t give a damn! Because bailing out your asses means you play by the government’s rules (and if you weren’t a bank that was bailed out…sorry about all this). And if you thought the volcano and flu stuff was all you had to tackle, think again. They want even more scenarios dreamed up, from the “relatively mundane” financial fraud to the borderline absurd. Once it’s been demonstrated you know where the fire extinguisher is, you can be left alone.

So, let’s see some fast thinking- what do you do in the event:

* You discover your balance sheet is completely made up and that your CFO has been selecting random bar code numbers in place of the true horror story that will soon engulf this cesspool and consign it to the scrap heap of corporate history

* The Queen is coming and you’ve run out of tea

* The entire female population is knocked out and you have to figure out how to repopulate the earth

* You need to bake and deliver batches of cookies to every first year at Goldman Sachs but you don’t have any flour

Fatal event– desk assistant pulls a sickie due to “food poisoning” but actually from the previous night’s bender and he doesn’t want to come into work
Work back– fire him and call Pret to deliver breakfast and coffee

Simple, the bank needs to go through reorganization from bad investments. Show us the plan of reorganization (including asset sales, haircuts for investors and bond holders). Provide an opinion letter from Weill Gotshal or equal about how long it would take, how much it would cost, who would do what. Provide an opinion letter from an economist (Stiglitz or equal) about how the banking/jobs system could manage the resolution without likely catastrophe (meaning large jump in U-3). Update the plan (and opinion letter) quarterly. Insist US banks do the same if they want to do work in the UK. Show the world the bank is not too big to fail.

From the poster’s name, I’m assuming he’s from somewhere in Canada, and I must apologize for him. We’ve just gone back to Buck-a-Beer and it’s been a bit crazy around these parts. Especially around the Community and Trade Colleges.

Fatal event: A Socialist government is elected and proceeds to nationalize industry, gut defense funding, impose capital controls and rationing, and lets your overseas possessions descend into anarchy.

Roofie, roofie, roofie. I believe Ms. Levin’s verbiage could be taken to meant that all the women of the earth were unconscious, therefore allowing gentlemen like you take advantage of said incapacitees (not a real word). What I think she meant to say (I earned a 530 on SAT Verbull) is that all the women of the world were gone, wiped out.

In such a scenario, it would be EXTREMELY difficult to repopulate the earth – unless of course you just fertilized the cryogenically frozen eggs, wait a while for about 50% of the artificial life forms to develop for saw 18 years (16 if in Jersey, what up Sanchez), and then commence repopulation.

Your piano playing pig gets swine flu and passes it onto your pet emu…taking your bird on a tour of Central America to digest the Black Liquor Tax on soft pulp, the avian flu mutates one more time and infects the local foliage including the rubber trees and coca plants. Chaos erupts soon after at Double line and Ping Capital.

Fatal event: the bubble in [insert latest craze here] implodes after you invested in a leveraged fund sold to you by GS
Work back: ask yourselve if it was this good, why wouldn’t GS keep it for themselves

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